Why Startup Strategy Isn’t Only About Innovation

Rarely do we find a featured new startup news about a team replicating, repurposing, or upgrading an existing solution. The innovators are those who grab most of the attention, usually. Is successful startup development tied to innovation? A question I discuss and answer in this post (and the title). First, I start by defining and discussing each strategy.

Replicating

It’s easy to replicate an existing successful model, isn’t it? After all, we’re cloning a live example. The demanded features are there, the data is there and process is clear, in fact, most of the time it is documented in the how it works page. I say it is definitely easier but not as easy as it seems. Replication essentially means taking an existing model and adopting it to new conditions.

In replicating an existing successful model, most of your attention should go in understanding user needs in the new market. For instance, Airbnb’s sharing economy model may not be as valuable to some European, African or Asian countries as it seems to be in the U.S., France and Germany. Besides building a scalable product following an existing one, your entire focus should go in customer understanding. This will be the reason behind your success or failure. The startup cloning icons, Samwers brothers, wrote a book about successful startup development before building an empire replicating successful billion dollar startups.

After studying many companies emerging in the Silicon Valley, the brothers adopted and mastered the copy paste approach successfully. It started with an eBay like platform which they sold to eBay for $43 million followed by a wireless content provider which they sold to Verisign for $273 million, another to Groupon for $170 million just 5 months after its inception and many pending companies like Zalando (Zappos clone), Lazada (Amazon clone) and Wimdu (Airbnb clone). Well planned replication can be a smart startup strategy.

Repurposing

Most of us have a lot fun repurposing existing ideas to new markets. The Uber for XYZ, the Airbnb for ABC and the list goes on with essentially every proven model out there. DogVacay is an Airbnb for dogs, Fon lets you share WiFi network, Vayable lets you take a guest on a tour and vice versa, you share goods with your neighbors through NeighborGoods, etc.

Repurposing essentially means taking an existing model and adopting it to new solutions. In repurposing an existing successful model, your attention should not only go to customer understanding for model adjustment if needed but also in whether the model is viable to address customer needs. In the case of the sharing economy, is peer to peer the best solution for this problem? Repurposing gives you the flexibility to hypothesize and test multiple proven models in solving an observed problem. After identifying the problem, your next step would be in identifying and defining potential solutions (existing models) that you can test through customer interactions and using non-scalable solutions.

Eatwith is another repurposing example I would like to share. It is an Airbnb like platform that matches guests with hosts for meal sharing. If you visit the platform, you will see that the layout, design, feel and look are very similar to Airbnb’s and even the different features, booking and acceptance processes are the same. Eatwith is in 50 countries, 200 cities and with 650 hosts. The team successfully repurposed an existing proven model.

Upgrading

Upgrading or enhancing existing solutions through quality, speed and performance is a form of competitive advantage. With upgrading, it is first important to consider market type. Are you entering an existing market or resegmenting one?

In an existing market, potential buyers are known. In fact, customers in this market can identify themselves since they already use solutions to satisfy existing needs. An existing market is competitive and barriers to entry are high. What this means is that your solution upgrade must add major rather than marginal value. Competitors are large, though bureaucratic, they can usually innovate at a higher rate especially if your solution upgrade show promised value. If things go as planned, your growth will essentially mean customers are switching to you.

Airfordable, a Y Combinator startup aims to resegment an existing market. The startup enables users to book flights and pay over time. In a resegmented market, customer needs are not very clear and you think you might have something better for them. Competitors are very few if you reach the right group of customers. Essentially, in a resegmented market, you target a niche with a slightly better value proposition such as Southwest’s low cost service. Resegmened market’s growth curve is misleading. You see a spike in sales and adoption that may flatten soon after. This is mainly because buyers don’t and usually can’t classify companies as existing or resegmented solutions and for this reason you may get the rush of early adopters at first and fail to hit the mainstream market which is the largest and most important, when needed. The mainstream market is usually influenced by the mainstream and for them your solution is a new competition with no major difference. Strong brands win eventually.

In upgrading an existing solution, your focus should be on customer needs.

Classify customer needs from urgent to good-to-have then list existing solutions for each one of those needs.

Do a preliminary online research about customer ratings, comments, different solutions for the same need (competitors), companies’ growth rate and future plans.

Interview a minimum of 50 existing buyers. Ask them about how satisfactory the solution is to them, what they wished worked better and what other features they wish existed. Make sure you keep the contact information of this group as they may be your first buyers.

Quickbooks makes it an extremely long process to download and set up the desktop version of their software. Also, in updating your books, you must do the work twice since their web version is not synchronized with the desktop one. I bring this example since I am a potential buyer. An external solution could enter the market not as a Quickbooks competitor but by offering an upgrade to one of Quickbooks solutions.

Innovating

Addressing innovation in a standalone absolute way is no longer valid. What kind of innovation are we talking about? Organizational, business model, technological, process, etc. In its most general definition, I call innovation an unprecedented viable and valuable change. In this post, I focus on business model innovation.

Many of us are still hesitant hosting strangers. For this group, I imagine the feeling and attitude towards Airbnb model was even stronger in the early days of the company and before it built its sharing and belonging brand. How much did the founders have to go through before acquiring the mainstream market (Geoffrey Moore)? The same applies to Uber. Creating a new market is challenging, time consuming and very costly.

More specifically, in a new market, you have no previous proof so your hypotheses are your guide. No direct competitors, though it is good news it adds to the uncertainty. In a new market, your job is not only to validate the viability of your solution but also educate the buyers. Take the example of Groupon. A new innovative and intuitive model that disrupted the market for deals with their daily deals model. Groupon is an outlier; the fastest company to reach a billion-dollar valuation. Uber and Airbnb are not. They built a viable solution and brand one brick at a time over multiple years and a couple of billion dollars of investment later.

Acquiring 20 or even 50 customers is not a signal of mainstream market penetration. Those 50 customers do not always represent the majority. You may be selling to innovators and risk takers. For a startup to move from the ‘startup phase’ to becoming a company, its services must reach a scalability point. For this to happen, the vision that the company is built on must be to serve buyers with similar sets of needs and not with similar sets of needs BUT are risk takers.

I studied the business model of many innovative startups to conclude that each and every one of them innovates by simply moving some pieces of the puzzle around to create a different shape. I propose the following framework for business model generation:

For customer M, service S leverages X and Y, to achieve Z without relying on W but by relying on this hidden V that is currently used to serve other purposes but can possibly serve Z.

What’s more important than the framework is the logic behind it. Look at every successful new business model in the market, almost none creates something out of the ordinary such as discovering electricity or inventing the cellular phone. Even in these two cases, inventors leveraged existing resources to introduce something new. Much harder back then; relatively easier today.

At the end of the post, I would like to compare resources (time and money) needed to operate a startup under each one of the four strategies. The chart is not drawn to scale. It is only meant for visualization. Time and money depend on other variables such as attempt to quickly acquire market share (Samwers brothers).

On average, replicating existing successful models should take the least time and money. In fact, many companies provide built clones that sometimes don’t need tech knowledge. This, of course, help in speeding market penetration but not necessarily with growth which demand more scalable solutions. Repurposing requires an extra layer of market research and validation. You may also leverage existing technology to address a different problem like Eatwith team did. Upgrading and innovating require more resources as they aim to create and validate a better, faster and sometimes unique solution. In addition to the investment required for market education, investing to attract the best talent is imperative and nonnegotiable. Team is behind every disruption.

Conclusion

Not every growing and profitable company is innovative. There are different startup strategies that can be equally rewarding:

With replication, you take an existing model and adopt it to new conditions. Founders like the Samwers brothers successfully replicated multiple models. Replication requires less time and money as compared to other strategies.

Repurposing is about taking an existing model and adopting it to new solutions. Eatwith repurposed Airbnb model to meal sharing. In addition to understanding customer needs, founders must focus on the viability (qualification) of the existing model to solve a different problem.

Upgrading or enhancing existing solutions through quality, speed and performance is a form of competitive advantage. Depending on market type (existing or resegmented) and customer needs, founders identify and introduce a better version of existing solutions.

Innovation is an unprecedented viable and valuable change. Business model innovation is about leveraging existing resources to solve problems uniquely.

In the package, you will find checklists, case studies, strategies, examples and tips that will provide you with lots of information about bootstrapping (self-funding) a startup and a side hustle with limited to no budget. You’ll learn how to turn hustle (sweat equity) into startup value without a financial investment.